Podcast 215: Nat Hoopes of the Marketplace Lending Association

For an industry to be taken seriously in Washington it needs a strong and vibrant trade association. The Marketplace Lending Association (MLA) was formed back in 2016 with LendingClub, Prosper and Funding Circle as its founding members.

Our next guest on the Lend Academy Podcast is Nat Hoopes; he is the executive director of the MLA, a position he has held for three years. We first had him on the show back in Episode 77 when he was barely a month into the job. A lot has changed obviously in the past three years and we get into quite a bit of detail of how in this episode.

In this podcast you will learn:

  • Nat’s thoughts on his three years on the job as executive director.
  • How he has been able to grow the association from three to 35 members.
  • The major successes for the MLA over the last three years.
  • Those things that didn’t go according to plan during the past three years.
  • Why important legislation for our industry is not getting a vote in the Senate.
  • Where we are at with the OCC Fintech Charter.
  • The MLA priorities for the fall session in Congress.
  • What we can expect from the House Task Forces on Financial Technology and AI.
  • How much the MLA interfaces with other industry associations.
  • What they are trying to achieve with the new MLA PAC.

This episode of the Lend Academy Podcast is sponsored by LendIt Fintech USA 2020, the world’s largest fintech event dedicated to lending and digital banking.

Download a PDF of the transcription of Podcast 215 – Nat Hoopes.

PODCAST TRANSCRIPTION SESSION NO. 215  –  NAT HOOPES

Welcome to the Lend Academy Podcast, Episode No. 215, this is your host, Peter Renton, Founder of Lend Academy and Co-Founder of the LendIt Fintech Conference.

(music)

Today’s episode is sponsored by LendIt Fintech USA, the world’s largest fintech event dedicated to lending and digital banking. It’s happening on May 13th and 14th, 2020, at the Javits Center in New York. Lending and banking are converging and LendIt Fintech immerses you in the most important trends of the day. Meet the people who matter, learn from the experts and get business done. LendIt Fintech, lending and banking connected. Go to lendit.com/usa to register.

Peter Renton: Today on the show, I am delighted to welcome back Nat Hoopes, he is the Executive Director of the Marketplace Lending Association (MLA), a position he has held for about three years now. We had him on the show just soon after he started in this role and I wanted to get Nat back on because obviously the MLA has matured a lot in the last three years, there’s been a lot that has happened in Washington.

I wanted to get him on to talk about the successes the MLA has had, what are some of the challenges as well, how it is to operate in the highly partisan era that we’re in now in Washington. We talk about the fintech charter, we talk about the House task force on financial technology, we talk about how he interfaces with the other trade associations that are all in Washington and we also finally, talk about the new PAC that they have created and much more, actually. It was a fascinating interview, I hope you enjoy the show.

Welcome back to the podcast, Nat!

Nat Hoopes: Thank you, Peter, happy to be back.

Peter: Alright, I was just looking, it’s been three years since we had you on. I know we had you on in your very first month on the job at the Marketplace Lending Association. I know this month is your three-year anniversary of taking this position so maybe you could just sort of start off with giving us how you feel like the last three years have gone.

Nat: I think they’ve gone as well as the founders, LendingClub, Prosper, Funding Circle and I could have hoped as we sort of set out on the journey to build an inclusive organization that is able to speak in Washington and in state capitals on the benefits of marketplace lending to consumers, small businesses, current and former students and so forth. That vision has really resulted in an organization that speaks with one voice on the issues in public policy that really matter to everyone.

Peter: Right, right, and you know, I think it’s also important that…you were a one man show for a long, long time and I think the industry has really benefited from your energy and you’ve been able to bring in pretty much all the major players in marketplace lending.

How was that process, was the industry really, you know, all supportive from day one, or how was the process in growing the Marketplace Lending Association from three members to where it is today? Maybe you can just tell us exactly how many members there are today.

Nat: Sure, so the numbers do continue to grow, but I think we are on our 35th member company and there’s always going to be a bit of fluctuation in trade associations as companies’ interests or activities in Washington and in public policy shift and change over time. But, I think that the key genesis of the whole association was really the decision to recognize that there are a lot of technology only lenders that are really, you know, departing from some of the practices of former sort of non-bank financial institutions in the way that they approach consumers, target consumers with opportunities, process applications, utilize technology and then provide those credits to investors.

So, I think once everybody sort of recognized that across the group that was to become the association of actual lenders then, obviously, all the ecosystem participants like large companies like Experian or PricewaterhouseCoopers and others, that everyone was really aligned in wanting this industry to flourish and to do so in a way that didn’t necessarily exclude models where the consumer was inarguably being treated well with lower interest rate loans and simple terms everyone could sort of understand and grapple with as they apply.

Likewise, that the model is really one where the capital markets and investors, both individuals and institutional investors, are the ones who are ultimately putting up the bulk of the funding. That model, that sort of two-sided element, even though it’s shifted and morphed and things have changed over time, that two-sided nature and the transparency that’s required to make all that go is really kind of core to our mission in the association.

Peter: Right, right. I should also add that LendIt has been a big supporter and a member of the Marketplace Lending Association pretty much from day one as well.

Nat: Thank you, Peter, that’s right, I shouldn’t forget that.

Peter: (laughs) That’s okay. So then just one last question before we move on, one last question about sort of the history here. As you look back over the last three years, maybe you could share with the listeners some of the successes that you’ve had in your time here.

Nat: So, I think if you look at it there are a couple of really big flash points. Number one, the association really launched in the heels of a really tough summer after the events at LendingClub in May of 2016. There was a real need to kind of put some of the rumors to rest about possible other issues that would drop and just steady overall the approach with questions coming from reporters and the questions coming from public policy makers, you know, questions coming from Congress and so forth.

So, you know, first I think the role of the organization was to be a public voice that didn’t exist and to do that in a way that was responsible and effective and on time. So, that was an initial, I think, success in just bringing some stability to the overall views and not allowing some of the positive views of the industry to erode too quickly in a difficult moment.

And then, you saw a few flashes with the Cleveland Federal Reserve study that tried to link marketplace lending to some sort of abusive lending and it turned out that the paper was just deeply flawed and that was another example where the industry really came together to do the research and then use the MLA to be a mouthpiece to really challenge the flawed findings of that report. Eventually, it was retracted and there was an apology issued by the President of the Cleveland Fed and so that was just another, I think, initial success.

And then, finally, we’ve had a couple of significant policy wins, proposals in different states that have been beaten back and a win on legislation with the IRS where there’s now a requirement that they build a real-time income verification system to replace one that really was outdated and has held back the industry. So, those are some examples of things that we’ve tackled at the association and also have just given a forum…

You have participated, I think, in both of our first two annual CEO meetings, but to provide a forum for the individual companies that are in the association to meet with the most important policy makers and to develop the relationship themselves because ultimately, this industry is still so small and the member companies are small enough that they don’t often have their own army of lobbyists, or their own in-house lobbyists with a couple of exceptions. They really rely largely on the association to help provide that connection to policy makers so we’ve been able to do that as well.

Peter: Right, yeah, for sure. I know that has been very, very useful for many of the companies and for the whole industry, I think, to have that sort of…it’s one thing for a company to lobby a regulator or a lawmaker, but it’s another thing for an industry. I think that really has helped tremendously.

We’ve talked about the successes, maybe we should talk about some of the things that haven’t gone the way you wanted. I know that there’s been some pieces of legislation that have been introduced and gone nowhere, maybe you should at least touch on that, the things that maybe you thought would have been successes but haven’t been.

Nat: Sure, one of the areas that has certainly taken longer than anyone would have anticipated has been trying to tackle the negative fallout of the Madden versus Midland decision from 2015. You know, that decision, although it had a nationwide impact, it has had an impact on loans made above state usury caps in the three Second Circuit states and certainly has forced companies that rely on bank partnerships to shift and the bank partners to shift in a way that they tackle that issue.

Certainly, that’s created major adverse consequences for consumers in the sense of lack of availability of credit initially following the decision and a real stark contrast to the continued growth in other jurisdictions. So, that sort of finding in that decision was challenged by the Obama administration and the Democrats in charge of, you know, obviously prior to the 2016 election and then you see continuity where the Republican administration included in a treasury fintech report a recommendation that it be overturned.

You’ve seen bipartisan legislation introduced in both the House and the Senate. The last Congress and legislation passed the House to reverse it so there’s been no shortage of activity and sort of education and thought leadership on why Madden was flawed and is creating negative consequences in this jurisdiction. But unfortunately there hasn’t been any real meaningful change from the standpoint of new legislation passed through Congress or a new regulation coming from the OCC or the FDIC.

Peter: So is that…I just would love to sort of maybe just touch on why. Is it because it’s just not a high enough priority on these lawmakers to-do lists? As you said it passed the House, why haven’t we had a bill?

Nat: Yeah, well I think…the Senate is particularly difficult, in general. These days I saw a statistic that so far this year, the Senate has only taken 19 total roll call votes on amendments. That was as of the summer and in a typical year you would have seen 200 votes as recently as 10 to 15 years ago so there has just been a major slowdown in how much policy and legislative voting there is in the Senate and that has been a bipartisan problem.

When I was in the Senate, we complained about it all the time when Harry Reid was in charge and now, Mitch McConnell is in charge and unfortunately you don’t see a lot more legislating going on. It’s just a reflection of the partisan nature of politics and just the way things have developed and so it’s very difficult to get even non-controversial legislation done.

Things that you think should happen quickly take a long time and then things that are perhaps a bit more controversial but you think deserve a vote, certainly an up or down vote, and think there ought to be a real chance of passage can get bogged down very quickly. That’s part of it, but I don’t think it’s fair also to blame it entirely on the Senate.

I think there has been significant concerns raised even though Marketplace Lending Association members partner with banks and do so responsibly and issue lower APR, longer term loans that are clearly able to be repaid without a borrower falling into a debt trap, there is concern on the part of certain advocates and others that if, you know, Madden were reversed in legislation and, you know, a clear certainty provided that that could become a loophole that less reputable market participants could use and, therefore, flout state laws.

So, that concern has created enough controversy around the issue making it a difficult one to legislate, however, I know that clearly the banking regulators, they filed briefs in the original Madden case and they certainly have an interest in making sure that banks can continue to sell loans and manage their portfolios and do so without being concerned that, you know, the people that might buy those loans might be non-banks and therefore, that the loans could somehow not be valid.

So, I think that there’s still a high probability that there’ll be some action from Washington on the issue, but your point about how high a priority is it, I think for the large bank trade associations, the ABA, the Bank Policy Institute or the community bankers, the ICBA, it isn’t an issue that ranks in their top five. It’s likely in their top ten and if you saw a number of other decisions, it could go up that priority ranking, but that certainly has been part of it that there isn’t a huge amount of industry pressure coming from those outside of the financial technology industry.

Then you also have a situation where it isn’t a huge priority outside of, you know, some pretty prominent members like Congressman McHenry who is very concerned about the capital markets and the potential impact on liquidity and on financial innovation and some others who have seen direct impact like Congressman Meeks in New York whose constituents are directly impacted by a lack of credit. You haven’t seen people feeling like there’s a huge urgent need to correct it.

Peter: Right, right. Okay, so what about the Fintech Charter which…you know, two years ago, I think if we chatted two years ago, we would have thought by September 2019 there’ll be several companies that’ll have been approved for a fintech charter. Now, we have zero and there’s lawsuits that are working their way through. I mean, is the Fintech Charter dead?

Nat: So, I wouldn’t go as far as to say it’s dead, it’s certainly tied down in litigation with New York, it’s going to be a long road for it to rebound. But that’s an example of something where, you know, I would say we would have considered our work on defending the need for a national options for companies to become special purpose banks, if they chose, without taking deposits, that that was an area where, you know, initially, there was quite a bit of resistance.

You will probably remember that in late 2016, a number of members of the House sent a letter to then Comptroller Tom Curry and said, stop working on the charter, we are concerned about this that it could be, you know, create an unfair playing field for banks, or that it could create too much regulation on fintech companies. So, there was sort of a lot of opposition initially and yet, I think, we played a pretty big role in helping create an outside voice and good rational reasons why it makes a lot of sense and it made it through the process, despite the change from Democratic nominees to Republican nominees and became very much a part of the current OCC’s agenda.

Unfortunately, you just see a bad court decision that permits one state to continue to delay it so that’s the dynamic. I think you’ve seen it’s not just the Fintech Charter that’s been a lot slower than anyone would have expected, but Square’s, ILC application, certainly, you haven’t seen, you know, a final decision there that would suggest that the window to becoming an industrial bank for a financial technology company is open either.

And so, some of that has probably to do with the resistance of the traditional banking organizations and some of it is due to the government…still it’s hard to believe, Peter, because I know you were testifying up in Capitol Hill five, six, or seven years ago, but the government is still in the early days or early innings from their standpoint of wrestling with how to properly regulate and what the proper framework is for dealing with these kind of companies. These organizations and institutions are, you know, in many cases hundreds of years old (laughs) so they don’t necessarily move with the speed that a fintech startup company would think they might.

But, the good side of that is they also haven’t decided I think that this innovation is something they want to suppress so we’ve been in a situation where a lot of these regulators that have the authority to move forward on charters or have the authority to move forward to give more certainty to purchase market participants using alternative, you know, data or AI or machine learning techniques. They also haven’t come out with negative “stop what you’re doing” instructions.

Peter: Right, right, yeah.

Nat: Frankly, Peter, that’s one of the biggest goals of the trade association is to ensure that government and policy doesn’t become a roadblock to positive development of an industry.

Peter: Sure.

Nat: And so, right now, I think it’s fair to say that we’re not necessarily getting a ton of, you know, speedy highways built for us, but we’re also not getting big giant roadblocks put in our way.

Peter: So then, we’re recording this just after Labor Day and Congress is still on recess as we’re recording this, but they are coming back next week and when this is published they will be back, but I’m curious about…obviously, you’ve had a few weeks without much happening on the congressional side so what are your priorities now that sort of Congress will be back and you’ll be talking with lawmakers? What are your priorities for the next few months?

Nat: So this fall, Peter, we are going to be quite active working up in Congress. Obviously, they return to session with the regulators and I think the regulators really have the potential to act on the Madden and true lender, either via weighing in the court case or with a regulation. And then, you’re going to see us file a letter on the SEC’s… really looking to, you know, redo the accredited investor definition and tackle the way private offerings work in the United States.

Obviously, that market has far outstripped the IPO market and companies are staying private longer and ordinary investors are really shut out from opportunities. That has a real impact in marketplace lending as well. Many MLA members have decided not to go the route that LendingClub and Prosper were able to go early in the days of the industry in creating an offering for ordinary retail investors to participate in the loans. So, how the SEC ultimately shakes out in trying to open up new opportunities is going to be very important to our industry and so we’ll file a comment letter and follow up with the SEC there.

And then we have a day of advocacy planned on issues related to student loan refinancing and repayment benefits so if you think about it today, unfortunately, if employers offer a student loan repayment benefit that’s not a benefit that comes without a tax burden. So it’s just like getting additional income and that creates a situation at the end of the year where an employee is faced with a tax hit for money they didn’t see since the money went to help pay off the student loan. So that’s an issue where there’s bipartisan legislation and I think a really decent chance that Congress may act.

So, those are some of the issues that we’re working on in addition to just continuing to do the basic work that we do regularly, you know, following up with members of Congress on their interests in our issues. The task forces on financial technology and artificial intelligence are an example of an area where there is some inquiries that are both potentially very helpful to us, but also where we need to make sure that there’s a good, accurate information being given. And finally, there’s just the good blocking and tackling that comes with all the media scrutiny and so forth as the industry continues to evolve and change.

Peter: Right. So, just going back to the House Task Force on Financial Technology, it obviously is a very key piece the whole industry is paying attention to. What do you expect…I guess, how many hearings will they have and what will be the output of this task force. Will it be a report with recommendations, is this going to leak into the next Congress, I mean, is this something you have to wrap up in the next 12 months? Just tell us a little bit more about it.

Nat: Yeah, so there are actually two. There’s Task Force of Financial Technology, and then one specifically on AI. I think that they will do hearings on a cadence that’s probably monthly to maybe not quite that often, obviously, with some of the breaks that Congress gets to get home and campaign. But they’ll certainly do a number of hearings and they’ll simultaneously be taking their findings and putting together, I’m sure, a lengthy report that will include recommendations.

The task forces don’t have a legislative power so you’re not going to see a task force mark-up of a bill. That would fall to the committee that Representative Meeks is the chair of, in our case, financial institutions. So, that’s a real, you know, important nuance, that those task forces they have certainly a lot of ability to generate news in our industry because that’s really where Washington to the standpoint of financial technology and lending, internet-based lending and so forth, are making news.

You’re going to read about it in terms of what the task force is doing, but that doesn’t mean that they’re going to be proposing negative legislation or positive legislation, it’s really going to be a longer term thing. So, they will hand over the report and the recommendations to the full committees and they’ll also, you know, probably there’s a chance that these task forces become in a future Congress, become an actual subcommittee which would have legislative powers.

Peter: Right, right, okay. We’re running out of time, but there are a couple of more things I really want to get to. The first is, there are lots of organizations these days beyond the MLA, we’ve got the Online Lending Policy Institute, the Innovative Lending Platform Association, the ETA, the ABA, the American Bankers Association, there are all kinds of associations that you’re coming across on a regular basis so how much do you guys sort of go in to bat together and how much is it that you…your agendas are obviously are going to be somewhat different. Just tell us a little bit about the interface between these other organizations.

Nat: Sure. So, I think, if you look at the banking trades, they represent the banks, purely, right, so they will certainly advocate for policy that, you know, they believe will promote innovation, but they’re also always going to be worried about a level playing field for banks. So, to the extent that they are working on issues that we care about, there’s going to be alignment, for the most part, for instance reversing the Madden decision.

That’s a great example where all the organizations you mentioned have been supportive. At the same time, there are going to be some nuances and there are going to be some differences in approach on different issues. So, for instance, APR disclosure and small business lending has been one that has kind of created some slight divisions between the ETA, the ILPA and MLA and certainly the group that worked on the Borrower Bill of Rights. So, that’s an example where, for the most part, there’s kind of a growing consensus about how to tackle that issue, but that led to some early splits.

OLPI runs a terrific event that’s coming up in October, we work with them, many MLA members will appear at OLPI and then ILPA obviously works on small business issues exclusively and ETA is largely focused on payments, but also works on lending to a certain extent. So, we really have, I think, been able to grow to effectively include not just the larger, bigger participants, but you know, there are companies that are in MLA like LendingPoint and others that are now getting ranked in some of the fastest growing companies in the country.

And so, that’s very exciting because, yes, you have some of the ones that were at the forefront of building this industry, starting it and still the largest by overall volume, but you also have smaller, fast growing companies that have really, you know, come to bring a lot of innovation and change in practices that are positive as well in our group and so I think we’ve been able to grow because we haven’t tried to get focus on payments or blockchain or digital currencies. We’ve been really very, very laser focused on the environment that will best support these new digital lenders and that includes issues…you know, bank charters, it includes issues like risk retention and securitization, it includes certainly the issues around the bank partnership model and so forth.

Peter: Right, Okay, so last question is about a new initiative you guys have started. This is the MLA PAC, the political action committee, I believe, right? So tell us, it’s a brand new initiative, why form the MLA PAC and what are you trying to achieve with that?

Nat: Sure, so I think the goal of any PAC is to support the candidates for office at the federal level that really take a view towards innovation and towards helping consumers, creating better options and a sound approach to regulation and being able to support them in a different way than simply going in and meeting with their policy staffers in Washington or with their home state directors.

So, it certainly is a different type of interaction that you have when you’re seated around a table potentially with other industries such as the banks who have very, very large PACs and are constantly having an opportunity to have those discussions, you know, one-on-one or a group setting. And so, I think, it’s going to create some new opportunities for the association, for the industry and it is all very transparent.

These organizations have been around for a long time, they’re well regulated, they’re completely funded by voluntary donations from individuals so they’re not funded by corporations, it’s individual people who work at the member companies of the MLA who say, I really like the policy positions that MLA espouses and I have been following this very closely and I really like the work that a certain member of Congress has done, whether it be something specific to marketplace lending or just something very general.

There’s no certainty requirement that we support, candidates that are only particularly focused on fintech or AI or whatever, we’re going to look broadly and we’re certainly going to be bipartisan. I expect that our donations will be almost certainly equal or a goal that it will be equal across both parties and it will really be an opportunity, I think, to foster more dialogue and potentially more focus on what matters in the growing market of marketplace and online lending

Peter: Okay, well, good luck with that. It’s certainly a new era for the industry and we’ve run out of time, I’m afraid, Nat, but I really appreciate you coming on the show today.

Nat: No problem, Peter, and we can tackle some of the other things that are happening, certainly the SEC and revisiting the accredited investor definition and private offerings. There’s certainly a lot we’re working on with debt-free/tax-free in the student loan market so if we can have another bite at the apple, I’ll certainly be glad to come on and tackle that.

Peter: (laughs) We’ll do that, we’ll do that again. Okay, thanks a lot, Nat, appreciate your time.

Nat: Terrific, take care.

Peter: See you.

You know, I look back at the ten years that I’ve been involved in this industry, or almost ten years, I guess, and how it’s changed and I feel like we really are a professional industry now. The online lending space, the marketplace lending space is far more professional than it ever has been and a lot of that is due to, I think, having a strong and vibrant trade association and that’s what Nat has been able to build over the last three years. Obviously, we’re nowhere near finished, but it’s a great sort of platform for us to really get credibility as an industry in Washington.

You know, it’s one thing for a company to engage, it’s another thing for an association to engage with lawmakers and an association that really has I think in many ways it is boxing above it’s weight. It’s still a very small organization, but has already had some major achievements and I think a lot of that has to do with Nat’s leadership and how he’s been able to bring together a disparate kind of array of voices and bring them all into a common purpose. I think it’s been fun to watch, I’m sure it’s been a huge amount of work on his part, but we are very well positioned now for the future.

Anyway on that note, I will sign off. I very much appreciate you listening and I’ll catch you next time. Bye.

Today’s episode was sponsored by LendIt Fintech USA, the world’s largest fintech event dedicated to lending and digital banking. It’s happening on May 13th and 14th, 2020, at the Javits Center in New York. Lending and banking are converging and LendIt Fintech immerses you in the most important trends of the day. Meet the people who matter, learn from the experts and get business done. LendIt Fintech, lending and banking connected. Go to lendit.com/usa to register.[/expand]

You can subscribe to the Lend Academy Podcast via iTunes or Stitcher. To listen to this podcast episode there is an audio player directly below or you can download the MP3 file here.

Peter Renton is the chairman and co-founder of LendIt Fintech, the world’s first and largest digital media and events company focused on fintech.

LendIt Fintech conducts three conferences a year for the leading fintech markets of the USA, Europe, and Latin America. LendIt also provides cutting-edge content all year long via audio, video, and written channels.

Peter has been writing about fintech since 2010 and he is the author and creator of the Fintech One-on-One Podcast, the first and longest-running fintech interview series.

Peter has been interviewed by the Wall Street Journal, Bloomberg, The New York Times, CNBC, CNN, Fortune, NPR, Fox Business News, the Financial Times, and dozens of other publications.

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